Real estate development in Texas benefits from a layered set of tax credits, abatements, and incentive programs at the federal, state, and local levels. From federal programs like the Low-Income Housing Tax Credit to local property tax abatements negotiated with city and county economic development offices, Texas real estate developers and investors have access to meaningful tools that can improve project economics and make otherwise marginal developments viable.
This guide covers the most important tax credits and incentives available to Texas real estate developers in 2026, including LIHTC, historic preservation credits, Opportunity Zones, property tax abatements, and related programs.
Low-Income Housing Tax Credit (LIHTC)
The LIHTC program is the single largest source of affordable housing financing in the United States and one of the most significant tax credit programs available to Texas real estate developers. The program provides federal tax credits to developers who build or rehabilitate affordable rental housing.
How LIHTC Works
LIHTC provides two types of credits:
- 9% credits (competitive): Allocated through a competitive application process administered by the Texas Department of Housing and Community Affairs (TDHCA). These credits provide approximately 70% of the present value of development costs over a 10-year credit period. Awards are highly competitive, and TDHCA scores applications based on factors including location, tenant population served, financial feasibility, and developer experience.
- 4% credits (non-competitive): Paired with tax-exempt private activity bonds allocated by the Texas Bond Review Board. These credits provide approximately 30% of the present value of development costs. While called "non-competitive," 4% credit projects must still meet TDHCA requirements and receive a determination of eligibility.
Texas-Specific LIHTC Considerations
TDHCA publishes a Qualified Allocation Plan (QAP) each year that defines the scoring criteria, set-aside categories, and regional allocation for 9% credits. Key Texas-specific factors include:
- Regional allocation formula that distributes credits across 13 uniform state service regions
- Set-asides for at-risk properties, rural developments, and USDA-assisted properties
- Scoring criteria that reward proximity to amenities, community support, and experience in the Texas LIHTC program
- Income averaging provisions that allow developers to serve tenants at various income levels within a single property
Who Should Consider LIHTC
LIHTC is relevant for developers building or rehabilitating multifamily rental properties with affordable rent restrictions. The credits are typically syndicated to investors through tax credit syndicators, providing equity to the project. Developers with experience in affordable housing, strong community relationships, and the capacity to navigate the TDHCA application process are the strongest candidates.
Historic Preservation Tax Credits
The federal Historic Tax Credit (HTC) provides a 20% income tax credit for the qualified rehabilitation of certified historic structures. This is one of the most impactful credits for developers working with older commercial buildings in Texas's historic downtowns and main streets.
Federal Historic Tax Credit
- Credit amount: 20% of qualified rehabilitation expenditures for certified historic structures
- Eligible buildings: Buildings listed on the National Register of Historic Places or contributing buildings in a National Register historic district
- Qualified expenditures: Hard costs of rehabilitation including structural, mechanical, electrical, and plumbing work, as well as architectural and engineering fees. Acquisition costs and site work are generally not eligible.
- Requirements: The rehabilitation must meet the Secretary of the Interior's Standards for Rehabilitation, and qualified expenditures must exceed the adjusted basis of the building (the "substantial rehabilitation test")
Texas Historic Preservation Tax Credit
Texas also offers a state-level historic preservation tax credit of 25% of eligible rehabilitation costs for certified historic structures. This credit can be claimed against the Texas franchise tax.
- Credit amount: 25% of eligible costs and expenses for the rehabilitation of certified historic structures
- Maximum credit: No statutory cap, but credits are awarded through the Texas Historical Commission
- Eligible structures: Buildings listed on the National Register of Historic Places, Recorded Texas Historic Landmarks, or State Antiquities Landmarks
- Transferability: The Texas historic preservation credit can be transferred to other taxpayers, creating a market for developers who cannot use the credits directly
When combined, the 20% federal credit and 25% state credit can cover a significant portion of rehabilitation costs for qualifying historic properties. Texas cities like San Antonio, Galveston, Fort Worth, and El Paso have active historic districts where these credits are frequently used. More about franchise tax credits in Texas.
Opportunity Zones
The federal Opportunity Zone program provides tax incentives for investment in designated low-income communities. Texas has more than 600 designated Opportunity Zones across the state, concentrated in urban cores, rural communities, and areas with economic distress.
How Opportunity Zone Benefits Work
- Capital gains deferral: Investors who reinvest capital gains into Qualified Opportunity Funds (QOFs) can defer federal taxes on those gains until December 31, 2026, or when the investment is sold, whichever comes first.
- Exclusion of gains on OZ investments: If the Opportunity Zone investment is held for at least 10 years, any appreciation in value is permanently excluded from federal income tax. This is the primary long-term benefit and is particularly valuable for real estate investments that appreciate significantly.
Texas Opportunity Zone Considerations
Texas's lack of state income tax means the Opportunity Zone benefits are entirely at the federal level — there is no additional state tax benefit. However, many Texas Opportunity Zones overlap with areas that offer other local incentives like tax abatements, enterprise zone benefits, and TIRZ funding. Layering Opportunity Zone capital gains benefits with local property tax incentives can create strong overall project economics.
Major Texas cities with active Opportunity Zone investment include Houston, Dallas, San Antonio, Austin, El Paso, and Fort Worth. Developers considering projects in these areas should evaluate whether the property falls within a designated zone.
Property Tax Abatements
Property tax abatements are one of the most commonly used incentives for real estate development in Texas. Cities, counties, and special districts can agree to abate (reduce or waive) property taxes on new construction or improvements for a period of years.
How Abatements Work
Texas law (Chapter 312 of the Tax Code) authorizes cities and counties to offer property tax abatements in designated reinvestment zones. Typical abatement terms include:
- Abatement of 50% to 100% of the increase in appraised value resulting from new construction or improvements
- Duration of 5 to 10 years (the statutory maximum is 10 years)
- Performance requirements tied to investment amount, job creation, or both
- Clawback provisions that require repayment if the developer does not meet commitments
Which Jurisdictions Offer Abatements
Most Texas cities and many counties have abatement policies in place. Eligibility varies by jurisdiction — some target specific industries or investment thresholds, while others have broad policies that cover commercial, industrial, and sometimes residential development. Contact your local city and county economic development offices to understand their specific abatement policies and application process.
Tax Increment Reinvestment Zones (TIRZ)
A Tax Increment Reinvestment Zone captures the incremental increase in property tax revenue generated by new development and reinvests it in the zone. For real estate developers, TIRZ funds can support public infrastructure improvements — roads, utilities, parks, and other amenities — that make development projects viable.
How TIRZ Benefits Developers
- Infrastructure funding: TIRZ can fund public improvements that a developer would otherwise need to pay for, including streets, water and sewer extensions, drainage, and landscaping.
- Development agreements: Developers can enter into agreements with TIRZ boards to receive reimbursement for public infrastructure costs as tax increment revenue is collected.
- Increased project value: By funding surrounding public improvements, TIRZ investments can increase the value and marketability of private development within the zone.
Major Texas cities have multiple active TIRZ districts. Houston has more than 25 active TIRZ zones, and Dallas, San Antonio, and Fort Worth also have extensive TIRZ programs.
Public Improvement Districts (PIDs)
A PID is a defined area within a city where property owners pay a special assessment to fund improvements and services within the district. For real estate developers, PIDs can finance infrastructure improvements that benefit a new development through special assessments on the properties being developed.
PID bonds can fund roads, water and sewer infrastructure, drainage, parks, and landscaping within the development. The assessments are typically paid by lot purchasers or tenants over time, reducing the developer's upfront infrastructure costs.
New Markets Tax Credit (NMTC)
The federal New Markets Tax Credit program provides a 39% tax credit (claimed over seven years) for investments in qualifying low-income community projects. For real estate developers, NMTC can provide additional financing for commercial and mixed-use projects in designated low-income census tracts.
NMTC allocations are made to Community Development Entities (CDEs) through a competitive application process. Developers access NMTC by partnering with CDEs that have received allocations. Several Texas-based CDEs have active NMTC allocations, and national CDEs also deploy credits in Texas.
SBA 504 Loans for Real Estate
While not a tax credit, the SBA 504 loan program deserves mention because it provides favorable financing specifically for commercial real estate purchases and major equipment. The 504 structure provides up to 90% financing — 50% from a conventional lender, 40% from a Certified Development Company backed by the SBA, and 10% from the borrower. The CDC portion carries a fixed interest rate, and terms can extend up to 25 years for real estate. Full guide to government-backed business loans in Texas.
Layering Incentives
The most sophisticated Texas real estate projects layer multiple incentives to maximize project economics. Common combinations include:
- LIHTC + TIRZ + property tax abatement: Affordable housing projects that use tax credit equity plus local infrastructure support and tax relief
- Historic credits + Opportunity Zone + NMTC: Historic rehabilitation projects in designated zones that stack federal and state historic credits with OZ capital gains benefits and New Markets credits
- Property tax abatement + PID + SBA 504: New commercial development that combines local tax relief with infrastructure financing and favorable lending
- LIHTC + historic credits: Rehabilitation of historic buildings into affordable housing, combining housing credits with historic preservation credits
Successfully layering incentives requires experienced legal and tax counsel, as each program has specific compliance requirements that must be satisfied simultaneously.
How to Get Started
- Identify your project type: Determine whether your project involves affordable housing (LIHTC), historic rehabilitation (HTC), new commercial development (abatements, TIRZ), or a combination.
- Check geographic designations: Determine whether your site is in an Opportunity Zone, historic district, enterprise zone, TIRZ, or other designated area. Multiple overlapping designations can unlock layered incentives.
- Contact local economic development: Your city and county economic development offices can explain available property tax abatements, TIRZ participation, and PID options.
- Engage specialized counsel: Tax credit financing requires specialized legal, tax, and accounting expertise. Engage professionals experienced in LIHTC, HTC, NMTC, and Opportunity Zone structuring early in the process.
- Apply to TDHCA: For LIHTC projects, review the current QAP and pre-application timeline. TDHCA offers workshops and technical assistance for applicants.
Bottom Line
Texas real estate developer tax credits and incentives span federal programs like LIHTC, historic credits, Opportunity Zones, and NMTC, plus state and local tools including the Texas historic preservation credit, property tax abatements, TIRZ, and PIDs. The most successful developers understand how to layer these programs to improve project economics while meeting the compliance requirements of each.
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